Why Aren't There More Starter Level Homes Built?

While we are feeling the effects of the national entry level housing shortage in Bend, we aren't seeing builders jumping onboard in big numbers to build starter level homes. The demand is definitely there for smaller, starter-type homes, as evidenced by local sales statistics of homes priced $300,000 and under. Millennials and renters desire to be homeowners, but their purchase level is far below that of previous generations.

According to a recent CNBC article, the reason builders are not running to meet demand for starter homes is profitability. The middle market has experienced most of the recovery from the recent recession. The rising prices in the middle market have also affected the price of land, which is a major cost builders must recover. A smaller home generally means a smaller profit margin.

Many of the larger homebuilders also have public stockholders who are concerned primarily for profit on their investments, and this is an added constraint. One would expect large-scale homebuilders to take a lead in meeting market demand, but once again, investors guide the decisions. Many of these larger builders have introduced lower priced homes, but they are not true entry-level homes.

During the recent recession, many starter level homes were foreclosed and in turn purchased by investors and converted into rentals. This has contributed to the current housing shortage of homes for first time homebuyers in terms of existing home inventory.

While building permits have been increasing the past year, single-family construction is said to be 18 percent below 25-year historical averages. With the market not meeting demand, coupled with the rental housing shortage and skyrocketing housing costs for owners and renters, many are looking at government to help solve this crisis by regulating the housing market more closely. Solutions include inclusionary zoning, rent control and easing credit terms for buying homes. Hopefully, everyone will be able to get together and come up with a solution, but it has been excruciatingly slow.